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return; the remaining mortgage debt ($57,000) was shown on the
estate tax return as being entirely Sheldon's debt. Nancy sold
the home for $730,000 in August 1988. After payment of the
remaining mortgage debt, sales commission, and other expenses,
Nancy received about $625-630,000 on this sale. Nancy spent
considerable amounts in winding up Sheldon's affairs, as follows:
Legal fees, $40,000; funeral expenses, $10,000; accounting
expenses, $15,000; and horse expenses, $40,000.
Notice of Deficiency
The entire deficiency determined for 1981, which petitioners
have conceded (supra note 2), is attributable to the State Coal
royalty deduction.
_______________________
If Sheldon and Nancy had filed separate tax returns for
1981, then the State Coal royalty deduction would have been on
Sheldon's tax return and not on Nancy's tax return. The State
Coal royalty deduction claimed on Nancy's and Sheldon's 1981 tax
return is an item of Sheldon.
Nancy did not know, and did not have reason to know of the
substantial understatement of tax on the 1981 tax return.
Nancy significantly benefited from the State Coal royalty
deduction claimed on the 1981 tax return; it is not inequitable
to hold Nancy liable for the deficiency in tax resulting from
this substantial understatement.
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